Meta Platforms reported better-than-expected earnings for the second quarter, as the company experienced robust growth in its advertising sales, thanks to AI-powered technology. However, investors also have concerns about its heavy spending on these innovations.
The parent company of Facebook, Meta Platforms, has reported second-quarter earnings that significantly exceeded market expectations, leading to shares jumping 7% in extended trading hours on Wall Street. The greater-than-expected guidance also fuelled the bullish momentum of the stock. Meta shares were up 34% year-to-date as of the close on Wednesday, doubling the performance of Nasdaq Composite Index.
AI-driven strategies boost advertising revenue
Meta reported revenue growth of 22%, marking the fourth consecutive double-digit increase of over 20%. This robust result was primarily driven by its digital advertising income, as its substantial investment in artificial intelligence (AI) showed success.
Meta’s AI-powered social platforms, including Facebook, Instagram, and WhatsApp, have improved efficiency in targeting users, enhancing the core advertising business. CEO Mark Zuckerberg said: “We had a strong quarter, and Meta AI is on track to be the most used AI assistant in the world by the end of the year.” Advertising sales, which contribute 98% of Meta’s overall revenue, rose 22% from the year-ago quarter.
However, this growth slowed from a 27% increase in the previous quarter, potentially due to a reduced year-on-year impact from the benefits of overseas Chinese online retailers, such as Shein and Temu.
The family daily active people (DAP) increased by 7% to 3.27 billion, while advertising impressions delivered across family apps rose 10% from a year earlier.
Overall revenue amounted to $39.07bn (€36.09bn), with net income surging 73% from a year earlier. Meta expects revenue of $38.5bn (€35.56bn) to $41bn (€37.87bn) for the current quarter, compared with analysts’ average estimate of $39.2bn (€36.21bn).
Heavy spending on AI projects
Meta has been known for its substantial spending on technology development, ranging from the controversial Metaverse and its Reality Labs division to AI infrastructure. While the Reality Labs unit continued to lose money in the second quarter, investments in generative AI began showing promising results.
Additionally, significant reductions in headcount since 2020 have also contributed to its growing profitability. Meta aims to maintain its lead in the AI sector, with Zuckerberg confident that these investments will eventually yield long-term financial returns.
The company reported capital expenditures of $8.47bn (€7.82bn) for the second quarter and revised its annual spending projection to between $37bn and $40bn, raising the lower end by $2bn. Meta stated: “We currently expect significant capital expenditure growth in 2025 as we invest to support our artificial intelligence research and product development efforts.”
The company recently unveiled its latest generative AI large language model, Llama 3.1 405B. Unlike the AI tools from other tech giants, Llama 3 is an open-source model, allowing third-party developers to access and modify its code. Meta claims this approach will reduce costs by half compared with tools such as ChatGPT.
Llama 3, which features 405 billion parameters, offers supercomputing power for AI training. The open-source nature of the model is likely to attract a broad community of users and boost its popularity.
However, potential downsides include concerns over security, legal issues, and intellectual property. Despite this, Meta’s AI model is available for free to developers, and the billions of dollars invested are yet to be monetised. Potentially, the company would introduce ads into AI interactions on its Family Apps or charge for access to its AI model.
